Trial in federal antitrust lawsuit against Sutter Health begins

The trial of a federal antitrust lawsuit against Sutter Health continues this week with plaintiffs accusing the company of illegally requiring insurance companies to include Sutter in all of their networks or none at all.

Plaintiffs’ lawyer Matthew L. Cantor said in opening arguments on Thursday that the policy involved Aetna, Anthem, Blue Cross Blue Shield of California, Health Net or United HealthCare and led to 3 million people overpaying $411 million for health services.

“Sutter did this by forcing anti-competitive contracts and exorbitant hospital prices upon the health insurance companies that directly pay the medical costs for millions of Northern Californians,” said Cantor of Constantine Cannon LLP.

Defense lawyer David C. Kiernan of Jones Day said the terms were not anticompetitive and in fact lead to lower costs and insurance premiums. Jeffrey A. LeVee, also of Jones Day, said, “Antitrust laws do not require Sutter to agree to every insurance company proposal. So Sutter isn’t violating them.”

The jury trial before U.S. Magistrate Judge Laurel Beeler of the Northern District is expected to last a month. Sidibe v. Sutter Health, 3:12-cv-04854, (N.D. Cal., filed Sept. 17, 2012).

Cantor described to the jury how broad, narrow and tiered health networks work. Broad networks exist when health plans contract with all or almost all of the hospitals in an area, including expensive ones, which drives up premiums. Narrow networks are for people who want cheaper insurance. Health plans shop just like an individual for cheaper, quality hospitals to include in this kind of network, he said. And tiered network plans sort hospitals based on cost, so members can pick and choose what they want.

“The evidence will also show that Sutter did not want to compete against other hospitals for network inclusion for preferred network treatment,” Cantor said. “It knew that this hospital competition would result in lower Sutter hospital prices.”

He said Sutter knew that if these lower price networks grew, greater pressure would be placed on all Sutter hospital pricing, even Sutter’s hospital pricing for broad network participation. So Sutter made sure that this price competition for hospital network participation would be suppressed, he said.

To do so, Cantor said, Sutter abused the fact it is the “only game in town” in various Northern California markets. Sutter used its economic muscle to pressure health plans into placing Sutter hospitals into their preferred tier and excluding lower cost competition in its networks, he said. This takes away choice from health plans, raising insurance costs, as well as denying individuals the ability to vote with their wallet. Cantor said.

Sutter operates on an all-or-nothing model, including contracts that force health plans that want Sutter in one network for one area to include Sutter in networks for other areas, Cantor said. Clauses in its terms with insurers prevent health plans from steering members to lower cost hospitals or offering them lower priced tiered network products, he said.

LeVee disputed the all or nothing claim, telling the jury that they will get to view the actual language of the contract.

LeVee said patients do not like narrow networks because they do not want to worry about the medical provider they see being out of network and thus getting hit with a fee. Insurance companies placed Sutter in lower tiers without its consent or allowing for negotiations, which increases costs that are passed on to ratepayers, he said.

Kiernan said Sutter is negotiating against some of the most powerful insurance companies in the world, and it takes months to reach agreements. If Sutter were as powerful as plaintiffs claim, the process would be much shorter and it could push through its demands with no trouble, he said.

Less than a year ago Sutter settled a case in state court for $575 million against similar allegations. As part of that agreement, Sutter agreed to stop using all or nothing contracting. It denies allegations it used the same practice in this case.